The Investing Diaries - Jan 13, 2021

So today I'm going to talk about something that I wouldn't even consider investing in but I love the technology. The technology of Bitcoin (BTC) is unparalleled and so innovative that at some point it will change the world if it hasn't already. Blockchain technology is something that is going to make the entire world more secure and hopefully at some point can put an end to centralization of not only our information or our money but also everything that we have to transfer digitally and even the internet itself. But in terms of Bitcoin overtaking as a currency for the world or even let's just say for the United States of America there are problems that I think that are presented that people are not talking about.

Now let me go ahead and preface this all by saying I am not an expert in Bitcoin, I have read extensively on the blockchain technology more than I have the exact currency, so if there's some things that I get wrong please correct me because I'm not an expert.

Now here's my main problem with Bitcoin and what's happening right now with it. One of Bitcoin's greatest aspects is that there is only 21.3 million that can be made. Now that being said, of the 21.3 million, I was just reading a story on the New York times, and that is really what's warranting this entry into the investing diaries, about a man that has lost his password for his digital wallet and is about to get locked out of 220 million dollars worth of Bitcoin. This is, I believe, just over 7,000 coins. Of course while this brings up so much anxiety for many around the world, and I'm sure for him, it is something that is a real issue that has happened in the past and especially in the beginnings of Bitcoin. How many shares have been lost? It is estimated to be about 10% of the the 18 million that are currently in existence. Also, how many shares will be lost in the future? My point on this is simply that when you have such a limited amount of something will you have to be very very careful on what happens to that asset. One thing that you can do is lose the asset and it becomes a non-existent. This is what I'm talking about and this is what the article was talking about previously.

The other thing that has to happen is you have to make sure that everyone can get a piece of this if you want to make sure that it is the future of decentralized currency. That being said when we look at Bitcoin, and yes I realize that it can be split up into smaller pieces, you see a decentralized currency that can never be distributed properly because of the ownership that is occurring right now.

Right now, the top fund owns about 2% of all Bitcoin. Now let's extrapolate this out over time and when we look at the Bitcoin trading, on rough math, I am coming out to seeing that about 10-15% of the Bitcoin volume is being traded on a daily basis. Obviously, like I said, I'm not an expert and this is all coming from rough math. But let's say for sake of the argument that I'm correct anf that a fund owns 2% of all bitcoins that are outstanding. If a small amount is being traded every day then someone that actually holds it and sits tight with their market share is going to be able to make artificial value and soon be able to control the entire market.

This is the main issue that I'm seeing with Bitcoin right now is that because you have a limited share then you also can have a limited amount of people that can actually hold the currency. There seems to be an issue with being able to distribute this currency across the entire market.

Let's even take some companies, such as PayPal, that are currently taking Bitcoin. Now also when I say taking Bitcoin what they're doing is converting Bitcoin into dollars so that you can spend it in the marketplace. This means that PayPal is actually collecting Bitcoin and the more people that use it over PayPal the more they collect and and keeping out of the market. This seems like a major issue to me in the future.

This would be the same as if let's just say there was 21 million actual physical dollar bills that can be split up into pennies and let's say a man like Bill Gates holds 4 million of these dollar bills and never wants to give them away. What that does is it decreases the actual currency that's flowing through the market and artificially raises the value. Now what happens with Bitcoin if institutions that are never going to actually trade or individuals that are never going to actually use the currency, hence the man that lost 7,000 bitcoins, own a significant amount of Bitcoin?

Then what happens?

My thoughts are that this is the main reason why Bitcoin won't actually be able to be used as a widespread currency. This is a thesis that I'm literally just spitballing as I'm going on this and again is for conversation starting.

My point is more than anything I guess, is that I love the technology behind Bitcoin and everything it stands for, but it as a world currency, or even a US currency, is something that I find far-fetched just because of the ownership distribution. This currency that started as something that could be decentralized and hopefully be able to bridge the wealth gap, now has turned into something that would make the wealth gap even larger. There's very little blue collar workers right now that are going to be sitting on piles of Bitcoin and very few of their jobs are going to be paying any of this out before the majority is actually owned by large institutions, the rich, or by tech fanatics that are going to sit on this until it reaches a value so high that the only people that are going to buy Bitcoin are the rich.

Now again I understand that you can be split up and by myself can buy a .0001 of a Bitcoin but again it has to be being sold and when that is sold what is it going to be bought with if Bitcoin is just the currency that's being used? How to companies get Bitcoin to pay employees?

Anyways, that's just my thoughts on a potential issue that I'm seeing with Bitcoin. please feel free on Twitter or stock twits when you see this to comment and help point me in a direction where it could educate me better because like I said again and I will always say until I get through enough research on the actual cryptocurrency, I'm not an expert on Bitcoin and literally just have these thoughts as I see it fluctuate in the market and as I watch the trading. I am way more inclined to have information on companies and valuations then I ever am on Bitcoin.

Until next time, happy investing.